Ziggs Corporation will pay a $4.20 per share dividend next year.

Ziggs Corporation will pay a $4.20 per share dividend next year. The company pledges to increase its dividend by 6.50 percent per year, indefinitely.

 

Required:

If you require a 10 percent return on your investment, how much will you pay for the company’s stock today? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).)

Current stock price

$

Explanation:

Using the constant growth model, we find the price of the stock today is:

P0 = D1 / (R – g)

P0 = $4.20 / (0.10 – 0.0650)

P0 = $120.00